Olivier Brandicourt – President and General Manager, Emerging Markets and Established Products

John Young – President and General Manager, Primary Care

Analysts

Jami Rubin – Goldman Sachs

Tim Anderson – Sanford Bernstein

Mark Schoenebaum – ISI

Tony Butler – Barclays Capital

David Risinger – Morgan Stanley

Chris Schott – JP Morgan

Olivier Brandicourt

Steve Scala – Cowen & Company

Seamus Fernandez – Leerink Swann

Jeff Holford – Jefferies

Alex Arphe – BMO

Damian Canover – Morningstar

Mark Goodman – UBS

Operator

Good day, everyone, and welcome to Pfizer’s Third Quarter 2012 Earnings Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Mr. Chuck Triano, Senior Vice President of Investor Relations. Please go ahead, Sir.

Chuck Triano

Good morning, everyone, and thank you for joining us today to review Pfizer’s third quarter 2012 performance. Today I’m joined by our Chairman and CEO, Ian Read; Frank D’Amelio, our CFO; Olivier Brandicourt, President and General Manager of Emerging Markets and Establish Products; Mikael Dolsten, President of Worldwide Research and Development, who is joining us remotely due to the storm situation; Geno Germano, President and General Manager of Specialty Care and Oncology; Amy Schulman, General Counsel, President and General Manager of Pfizer Nutrition; and John Young, President and General Manager of Primary Care.

The slides that will be presented on this call can be viewed at Pfizer.com by clicking on the link for Pfizer quarterly corporate performance, third quarter 2012 located in the Investor Presentations section in the lower right-hand corner of this page. Before we start, I’d like to remind you that our discussions during this conference call will include forward-looking statements and that actual results could differ materially from those projected in forward-looking statements. The factors that could cause actual results to differ are discussed in Pfizer’s 2011 annual report on Form 10-K and in our reports on Forms 10-Q and 8K.

Discussion during this call will also include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in Pfizer’s current report on Form 8K dated today, November 1, 2011. In addition, we will offer some brief comments regarding our preparation and target timeline for the potential IPO of the minority stake in our Animal Health business, Zoetis, and as I’m sure you’ll understand we’re not going to be able to respond to questions on that subject in light of the quiet period imposed by securities laws.

With that, I’ll turn the call over to Ian Read.

Ian Read

Thank you, Chuck. During my remarks this morning I will briefly discuss the quarter and touch on some noteworthy events that happened in the last weeks. Overall our performance remains in line with our full year guidance. As we’ve discussed over the course of the year, our financial performance in the near-term will continue to be impacted by the loss of exclusivity, notably Lipitor in all major developed countries. Year-to-date we have absorbed approximately $5.5 billion in LOEs. I would note the most significant impact on revenues from LOEs will be in 2012 and this impact will decline significantly in subsequent years.

To mitigate the impact to our earnings per share we are producing growth from key lines, patented products including Lyrica and Celebrex globally and Viagra in the U.S. We are seeing growth in emerging markets most notably in China, Mexico and Russia. On a year-to-date basis our emerging market business has delivered solid performance with 10% growth on an operational basis.

We have been effectively managing our cost structure and using the strength of the balance sheet. For example, while revenue for the quarter declined 12% on an operational basis, our adjusted cost of sales FIA expenses and R&D expenses in total decreased operationally by 8%. And if you exclude the $250 million payment of AstraZeneca for the exclusive worldwide rights to the over the counter Nexium they would’ve declined 11% operationally bringing costs down in line with the revenue decline we saw this quarter.

We continue to execute our share repurchase program. During the quarter we repurchased $1.8 billion of common stock and our year-to-date repurchases are almost $6 billion. The board has authorized an additional $10 billion in share repurchase to be utilized over time upon completion of the sale of nutritionals to Nestlé which we now anticipate in the next few months. Our potential IPO for animal health remains on track and depending on market conditions, we continue to expect the IPO to happen during the first half of 2013. As for our regular practice, I expect the board to set the dividend rate for 2013 at its meeting in December.

Turning now to some recent noteworthy events. I remain confident that the quality of the assets and the progress I see in our pipeline. We have a robust set of potential high-value assets across our key therapeutic areas. They include some in early and mid stages for diabetes pain and cardiovascular diseases. Vaccines for mening B at adolescence and Staph aureus. Late stage in coli compounds and recent advances for key pipeline assets.

Concerning tofacitinib, we are looking forward to hearing from the FDA about our NDA on or before the upcoming PDUFA date this month. Tofa was discovered by Pfizer scientists in our labs in Groton, Connecticut. If approved it will be the first new oral disease modifying therapy for moderate to severe rheumatoid arthritis in more than 10 years. It has the potential to change the way healthcare providers treat RA. It would also be the first RA treatment and new class of drugs known as Ganis Hynais or JAK inhibitors.

And if approved it will be a first in class product that we believe will offer a compelling clinical profile and an effective new treatment option for patients. Regarding Eliquis, the FDA has resumed its review of the Eliquis NDA and set a new action date of March 17, 2013. We and our alliance partners, Bristol-Myers Squibb remain confident in the therapy profile of Eliquis and that we can receive FDA approval by the new PDUFA date.

Turning to oncology, Xalkori just received conditional marketing authorization in the E.U. for previously-treated out-positive advanced non-small cell lung cancer patients. Our conditional marketing authorization in the E.U. is similar to accelerated approval for the United States. They have granted to medical products with positive benefit-risk assessment that addresses unmet medical needs and whose availability would result in a significant public health benefit.

Pfizer will submit data to the NEA from the recently-completed study which met its primary endpoint and previously-treated out positive advanced non-small cell lung cancer patients. For a review of this data, the European commission will consider converting the conditional marketing authorization to a full marketing authorization.

And coming at our consumer business, we are encouraged by positive news that multivitamins resulting from the physician’s health study 2 conducted by investigators at Brigham and Woman’s Hospital, a teaching hospital at Harvard University. We are pleased that the study investigators chose Centrum Silver based on its quality and consistency, among other factors. For the duration of the 11-years study that tested the role of multivitamins in relation to long-term health benefits. I would note that Centrum is the sixth largest OTC brand in the world and Centrum Silver is the world’s number one selling multivitamin for adults 50 and over.

We have recently launched new products, Inlyta in Europe, Busleth in the U.S. and we will soon launch Xalkori in Europe. I remain confident that we have a strong pipeline focused in the therapeutic areas where we have strengths and which can deliver our next wave of innovative products. I am pleased with how we are executing on decisions we have made to create meaningful incremental shareholder value for the potential animal health IPO and Nutrition sale.

We are seeing good results from the actions we are taking to manage costs across the business. We continue to make shareholder-friendly capital allocation decisions and finally, we are making decisions that we believe have the potential to drive future earnings per share growth.

Now I’ll turn it over to Frank.

Frank D’Amelio

Thanks, Ian. Good day, everyone. As always, the charts I’m reviewing today are included in our webcast. I want to again remind you that the Nutrition business is presented as a discontinued operation in the consolidated statements of income for all periods presented. As you know, discontinued operations are excluded from adjusted financial results. Consequently, throughout 2012 the results of the Nutrition business have been excluded from adjusted results.

Now let’s move on to the financials. Third-quarter 2012 revenues of approximately $14 billion decreased 16% year-over-year reflecting a 4% negative impact from foreign exchange and an operational decline of approximately 12% driven mainly by the loss of exclusivity of several key products in certain geographies notably, Lipitor, in all major markets.

Adjusted diluted EPS of $0.53 decreased 12% primarily due to the previously mentioned decrease in revenues which was partially offset by an aggregate operational decrease of 8% in adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses primarily resulting in cost reduction and productivity initiatives, a lower adjusted tax rate of 28.3% and fewer weighted average shares outstanding due to our continued share repurchases.

Reported diluted EPS of $0.43 decreased 10%. In addition to the factors previously mentioned, reported diluted EPS was favorably impacted by a U.S. tax settlement and negatively impacted primarily from the non-recurrence of the gain on the sale of Capsugel in the year ago quarter.

Foreign exchange negatively impacted third quarter revenues by 4% or $699 million and favorably impacted adjusted cost of sales, adjusted SI&A expenses and adjusted R&D expenses by $440 million or 5%. This negative impact was primarily driven by the euro and to a lesser extent, the Brazilian real, versus the U.S. dollar. As a result, foreign exchange negatively impacted third quarter adjusted diluted EPS by approximately $0.02.

In the third quarter of 2012, emerging markets biopharmaceutical revenues were approximately $2.4 billion, which reflects operational growth of 6% and a negative impact of foreign exchange of 8%. I want to point out that the volatility in our emerging markets quarterly revenues was driven primarily by Prevnar purchasing patents specifically the timing of government purchases of Prevnar 13 in Turkey compared to the year ago quarter.

Volume growth of 8% in emerging markets was partially offset by price reductions of 2% resulting in the 6% operational growth. Of the third quarter emerging markets biopharmaceutical revenues approximately 41% was generated by established products, 33% by specialty and oncology products and 26% by primary care products.

Third quarter biopharmaceutical revenues in the BRIC-MT markets were approximately $1.1 billion which reflects operational growth of 9% and the unfavorable impact of foreign exchange of 10%. Of the third quarter BRIC-MT biopharmaceutical revenues, approximately 42% was generated by established products, 30% by specialty and oncology products and 28% by primary care products.

During the third quarter, biopharmaceutical volume growth of 10% in the BRIC-MT markets most notably in China, Mexico and Russia, was partially offset by price reductions of 1% resulting in operational growth of 9%. Year-to-date, operational growth in the BRIC-MT markets was 13% versus a year ago quarter reflecting volume growth of 16% partially offset by price reductions of 3%.

Based on our year-to-date performance and outlook for the remainder of the year, we are narrowing the ranges for our full-year guidance components. We are narrowing the reported revenue range to $58 billion to $59 billion from $58 billion to $60 billion. We are decreasing and narrowing the range of adjusted cost of sales as a percent of revenues to 18.7% to 19.2%. We are decreasing and narrowing our adjusted SI&A expense range to $16.3 billion to $16.8 billion. We are narrowing our R&D guidance range to $7 billion to $7.25 billion. I want to point out that our R&D guidance includes the $250 million payment to AstraZeneca for the exclusive global over the counter rights to Nexium which were recorded in the third quarter.

We now expect other deductions to be approximately $900 million and continue to expect the effective tax rate on adjusted income to be approximately 29%. We are increasing and narrowing the range of our reported diluted EPS to $1.30 to $1.38 and we are narrowing our adjusted EPS range to $2.14 to $2.17. Finally, we now expect operating cash flow to be approximately $18.5 billion which reflects the charge related to the RapidUse settlement recorded in the third quarter.

Our third quarter results continue to reflect the loss of exclusivity of certain products mainly Lipitor in all major markets. That said we are continuing to mitigate the impact of Lipitor LOE with expense discipline and share repurchases. We received U.S. regulatory approval for bosutinib and in European Union we received approval for inlatum and conditional marketing authorization for Xalkori. We filed a registration statement in mid August for a potential initial public offering of up to a 20% ownership stake in the animal health business to be named Zoetis. In addition, we filed an amendment to the S1 on October 10th which included updated financial statements through the second quarter 2012.

We remain on track to complete a potential IPO in the first half of 2013 and as we continue to work toward a separation of the business we remain open to all alternatives to maximize the after tax returns for shareholders.

We continue to create shareholder value through prudent capital allocation with approximately $5.9 billion or 255 million shares repurchased through October 31st. Approximately $4.1 billion of authorization remains under the current repurchase program.

The board of directors also just recently authorized a new program upon the sale of the nutrition business to repurchase up to 10 billion of our shares over time. We now expect to complete the sale of nutrition business to Nestlé in the next few months.

Finally, we expect to return more than $12 billion to our shareholders through dividends and share repurchases during 2012.

Now I’ll turn it back to Chuck.

Chuck Triano

Thanks for the review, Frank. At this point, operator, if we could please poll for questions.

Ian and Frank, a question for you both. If you could give us some granularity and color on what the revenue outlook for this company might look like 2013 and beyond? Obviously, 2012 we were in the teeth of patent expirations with the Lipitor LOE but how should we think about directionally revenue outlook going forward? And just also to follow-up on tofa, Ian, you said you expected the FDA to a act on or before the PDUFA date, can you share with us your expectations for what kind of label you might receive? Thank you.

Ian Read

Thank you, Jami. Well, revenue outlook – I’ll make a few comments and then let Frank add anything he wants to and I’ll ask Geno to answer on the tofa question. The peak year of patent expiration for us as far as we can see is 2012 – approximately 8 billion. Subsequent to that 2013, 2014 and 2015 will continue to be faced with LOEs and alliance revenue losses. They will be substantially lower than that – probably a peak of 4 billion in one of the years but between 3.5 and four in the subsequent three years. Still subject to alterations and fluctuations as patents expire.

So countering that of course we will have in line growth from our patent products with emerging market growth. We’ll have the launch we expect of tofacitinib and Eliquis and we expect to also have the launch of adult vaccine. So those are the two currents I would say that would be affecting our revenue over those years. So, Frank, do you want to add anything to that?

Frank D’Amelio

I would simply add that in addition to everything Ian said we will also continue to manage our cost structure and we will continue to do share repurchases and all those things will lead to steady, consistent earnings growth over time.

Chuck Triano

Thank you, Geno, on tofa?

Geno Germano

Yeah, just a couple comments on tofa. We’re nearing I think the end of the review process. We do expect that we’ll have an action by the PDUFA date this month. And with regard to the expectations I think you know we have a very robust data set behind tofa with five large pivotal trials showing a good advocacy and safety in both the pre-TNF and post-TNF setting. We think that the results that we’ve seen across this broad range of trials and broad range of patient types showed very consistent response and we’re expecting to have a competitive label.

Chuck Triano

Thank you, Geno. Next question, please, operator.

Operator

Your next question comes from the line of Tim Anderson from Sanford Bernstein.

Tim Anderson – Sanford Bernstein

Thank you. Ian, you had mentioned this earlier about all strategic options being on the table for Pfizer. So last year in July of 2011, you disavowed splitting up the drug side of the business when you give your strategic update. That language in 2012 has changed subtly and I’m just wondering if you could provide any more specifics on potentially splitting up the drug side? So what can that look like look? What could the structure be and importantly, when would we hear more? And then on tofacitinib, if I can just ask one question. Do you expect you will give up to five mg and 10 mg doses approved on the first go around?

Ian Read

Okay. Well, I’ll take the overall company question and then I’ll ask Geno to reply on tofa. So, I think I’ve tried to be clear on this, as I see putting consumer to one side which fits with the either of the other two remaining businesses, I see us as having two businesses going forward once we finish. If we do complete the separation of nutritional and animal health. I see us having a growth business or innovated business which is fueled by the pipeline that I discussed earlier in my comments today and then I see a value business which is depending on post-LOE or pari-LOE products, very broad geographic capabilities, large capabilities in reimbursement and managing the global business.

So those two businesses I think are core businesses for us. We will, we already have in the develop market, separated those businesses out so we do have an innovative business and an established products business which equates roughly to those two segments. And in emerging markets, we continue to manage them as country organizations. Now, once we get through the changes of animal health and nutritional, we will continue to look at how to best structure those two businesses so they can maximize the value to Pfizer. Geno, do you want to comment?

Geno Germano

Yeah, sure, Tim. Regarding the five and 10, as you know, in all five of the pivotal trials that we conducted we tested both the 5 mg and the 10 mg doses. Again, the results were very consistent across the board, across the patient types in the trials that were done. We believe that the benefit risk is favorable for both the five mg and the 10 mg and at this point in our discussions with the FDA we’re not going to comment any further on what we expect the final outcome to be.

Chuck Triano

Thank you, Geno.

Operator

Your next question comes from the line of Mark Schoenebaum from ISI Group.

Mark Schoenebaum – ISI

Hi, guys. Thanks for taking the question. Maybe if I could just first build on Tim’s question. Will you report out separately at any point in the next year or so the established products P&L versus the branded products P&L? So, not breaking the company up but just giving us more disclosure in the Ks and the Qs around those business operations? And then I had a question if I may for Dolsten, for Mikael Dolsten, sorry. I was wondering if he could update us just on timelines, make sure everything is on track for the Prevnar capita trial and also bring us up to speed on the mening B and Staph vaccine programs. Thank you.

Ian Read

Okay. I’m going to ask Frank to answer the question on the reporting structure and then Mikael, if you could take those other questions on the capita trial.

Frank D’Amelio

So on reporting, we provide revenue detailed today by individual business units. So in charts that I walked through, there’s clearly revenue detailed by business unit. In terms of beyond revenue detail, I think the way to think about this is, the established products business has lower gross margins than the traditional pharmaceutical businesses but has comparable operating margins because it requires less expenses which is something that we’ve talked about previously. And going forward, we’ll do what we always do, which is see where there are opportunities to improve the transparency of the company and to the extent that we see those opportunities to be more transparent we will incorporate those into our external reporting.

Ian Read

Thank you, Frank. Mikael, if you’re on. Thank you.

Mikael Dolsten

Thank you for your interest in our vaccine pipeline. The Prevnar capita trial is an event and pending the seasonality and severity of the immune, often treated by cold and flu seasons. We have in our projections that capita may have sufficient events due in 2013 to allow us to aggregate data during the latter part of that year. Mening B has gone through very productive dialogues with regulatory agencies in the U.S. and Europe and we anticipate starting and plan to start before the end of this year. Staff Aureus contains two studies that are in Phase 2 with a readout during next year.

Ian Read

Thank you, Mikael.

Chuck Triano

Next question, please, operator?

Operator

Your next question comes from Tony Butler from Barclays Capital.

Tony Butler – Barclays Capital

Thanks, and good morning. Two housekeeping questions and one R&D question, please. What were the sales for Xalkori and Inlyta? And second, if you look at Sutent, could we argue that it might be slowing if you simply look at it sequentially? Has it totally maxed its potential? And then for Dr. Dolsten, an earlier stage product in PCSK9, Pfizer seems to be a little bit behind at least two competitors given that Phase 2B just started from a dosing perspective and will not complete until next year, suggesting the Phase 3 trial would not necessarily start up until sometime later next year or even later than that. And the question really is how would you envision this emerging is a year behind, not that big of a deal, and more importantly do you think that there is a unique characteristic for your molecule that may be different from others? Thank you very much.

Ian Read

Thank you, Tony. Frank, could you address the sales of Xalkori and Inlyta? Perhaps Geno wants to comment on Sutent and then I’ll make a couple of comments on PCSK9 and ask Mikael comment further.

Frank D’Amelio

Sure, so on Xalkori, revenues for the third quarter almost 40 million, for Inlyta revenues for the third quarter were almost 30 million, so approximately 40 million and approximately 30 million for those two drugs respectively.

Geno Germano

Yeah, and for Sutent, Sutent it is doing very well; it remains the number one choice in first-line metastatic RCC and frankly, it’s showing a lot of durability. So we’re looking forward to continuing our leadership position in RCC now with Sutent, Inlyta and Toracel, it’s a real strong franchise for us.

Ian Read

Thank you. On Xalkori, the testing has gone up from 11% I think at the beginning of year now to 55% which is very encouraging because that required a change in physician practice and if that occurs, it makes us more optimistic about the potential for Xalkori going forward and of course, we now have the launch coming in Europe. On PCSK9, yeah, I believe that we may be potentially a little behind some of our competitors. It really is an issue of, as you say, the differentiation and if we don’t have a first in class do we believe we potentially have a best in class asset? And clearly, the development of this asset has several strategic options. Mikael, do you want to add anything on the science of that?

Mikael Dolsten

Yeah, let me add a few words. We are very excited about this drug class. We think there may be differences between antibodies in the performance in the immunities and in the dosing regimen and it’s important to have the optimal dose regimen to allow sustained relevant cholesterol levels in a convenient manner to be accomplished.

Ian Read

Thank you, Mikael.

Chuck Triano

Next question, please, operator?

Operator

The next question comes from David Risinger from Morgan Stanley.

David Risinger – Morgan Stanley

Two pipeline questions; the first is specific. I’m hoping to better understand the meningococcal B development program. As I see it on clinicaltrials.gov, you’re running a Phase 3 safety study involving 7,500 patients and since it has the word safety in the title, I’m assuming that the drug or the vaccine cannot be filed after that trial, that there will need to be additional Phase 3 trial work, but I may be wrong. So just wondering if that trial successfully concludes, can you file or do you need to do a additional Phase 3 work? Then the second question is, for Mikael Dolsten. Mikael, can you just highlight the key Phase 2 product readouts that we should be watching in the next 12 to 18 months? Besides the PCSK9 which you’ve already discussed. Thank you.

Ian Read

Thank you, David. Mikael, could you handle the mening B question and then also address the pipeline?

Mikael Dolsten

Yeah, so in the mening B program it’s correct – we have a safety study ongoing. But we’re planning this year to start and also early next year several other studies that include large efficacy studies and different batch lot consistency studies and potentially can comment on vaccine studies. So it will be a broad program that will be aimed to show effectiveness to raise relevant immune responses and applicability for young and adolescent patients to use the vaccine.

When it comes to the pipeline, what should be the next wave to watch? So let me briefly mention some ten key opportunities for 4Q to carry us. In oncology, I would mention dacomitinib for non-smoker lung cancer, Inotuzumab for basic malignancies and PD9 and 1 – our exciting CDK inhibitor for advanced breast cancer. We are planning to present Phase 2 data at the San Antonio Breast Cancer Symposium in December.

In vaccines we already spoke about mening B vaccine and the Staff Aureus vaccine which we’ll have a few C readout during next year. Tofacitinib is of course the flagship in our immunology therapeutic area with a portfolio of opportunities beyond RA. We are in a Phase 3 for psoriasis and also is collective with studying additional indication in Phase 2 including Crohn and we’re supplementing our inflammatory bowel disease activity with PUC studies for med cam and aisle 6 antibodies which we have readouts in the next 12 to 18 months. The aisle 6 antibody will have utility and there is a PUC study ongoing in lupus.

And finally, in the cardiovascular metabolic area in addition to PCSK9 we also have an exciting pancreatic acting glucokinase drug. So as you can see I have selected some key opportunities of a very rich and diverse pipeline of some 90 projects. Thank you.

Ian Read

Thank you, Mikael. I would add to that, that the – clearly we started the safety program mening B because those trials take longer than the efficacy programs and clearly as we started our Phase 3 trials we now have an agreed-upon development program with the FDA that we believe will lead to approval.

Chuck Triano

Thank you, next question, please, operator.

Operator

Your next question comes from Chris Schott from JP Morgan.

Chris Schott – JP Morgan

Just couple here. First, emerging market growth – it looks like it’s about 10% year-to-date – year-over-year growth. Obviously a nice step up over the 2011 results. But just interested in your thoughts on the longer-term growth opportunity in these markets? Do you think you can sustain low double-digit growth in the emerging markets over time or has enough changed in the macro environment where that’s no longer a reasonable target?

Second question was on the commercial opportunity Eliquis. Just any thoughts on your expectations for the label you might receive there and how you’re thinking about that market and how it’s evolved so far with your competitors? And then finally can you give an update on this data is of Remoxy in beta? Just how we should be thinking about those? Thank you.

Ian Read

Okay. Thank you. I’m going to ask Olivier to comment on emerging market growth potential and then John Young will do Eliquis and Remoxy.

Olivier Brandicourt

Chris, yeah, we think we can continue to perform in line with our goals of high single digit growth over the period. The macro trends continue to be favorable with increased amount of spending on healthcare and the pharmaceutical market which is growing at 12%to 15% in the next few years. So again, we think we can maintain the high single digit and again if you look at the 6% we achieved during the quarter it’s very much influenced by the Prevnar and Amberal institutional sales to government. And if you take out that cadence you look at the base business during Q1 2012 we grew by 9%. The second quarter of 2012 and this quarter is still 11% percent. So all of that indicates that we have a pretty strong foundation and we can then continue to build on it.

Ian Read

Yeah, I would add also we’re very pleased about the presence in the BRIC-MT markets with accelerated growth there and the strength of our organizations, we’re the number one multinational in China, and we have impressive positions in the other BRIC-MT markets. So with that, John would you like to take the other questions?

John Young

Okay. Thanks for your questions, Chris. So let me take Eliquis first. And say obviously as you are aware as we announced previously on 26 September, the FDA acknowledged our receipt of the Eliquis NDA resubmission for our nonvalvular atrial fibrillation indication. The discussions between Pfizer and BMS and the FDA are ongoing. We continue to work closely with them. And as you know, the target date for the FDA to complete their review is 17 March of 2013, which is when the PDUFA date occurs.

In terms of your question about do we see the potential? Clearly, we believe that Eliquis is differentiated from warfarin because it’s demonstrated superior efficacy, bleeding on cores mortality compared to warfarin in a single dose. So we believe that we should have a compelling profile with cardiologists as well as primary care physicians, and we are working very closely with our partners BMS to finalize this strategy and plans and make sure that we are very well prepared for launch.

So if I turn now to Remoxy and Embetta, first of all, we meant with the FDA in May of this year to discuss our proposal for reintroduction of Embetta to the market. The required stability programs are under way, and we anticipate a submission of a prior approval supplement in the first half of 2013.

If I turn to Remoxy, as you probably know from previous calls, Remoxy has been a challenging asset that our teams have been working on very diligently since the acquisition of King. As a result of that work, the – and extensive insights that we’ve gained around the formulation, we’ve initiated complementary by availability studies to assess the pharmakinetic or PK profile of modified Remoxy formulation compositions. And we expect those studies to read out early in 2013. We think that the results of those studies will provide us a much greater clarity on whether or not we’ll be able to adequately address the questions raised in the complete response letter that we received from the FDA.

So we’re targeting a late March meeting with the FDA to discuss those outputs and agree on a net go or no-go decision. I think one last comment just to make is that I think it’s important to remember that our commitment to this area is very strong, and as such we continue to invest in our compound ALO-02, which is an extended release oxycodone, which uses an altraxon platform technology and it’s currently in Phase III.

Ian Read

Thank you, John.

Chuck Triano

Thanks, John. Operator, our the next question, please?

Operator

Your next question comes from Steve Scala with Cowen & Co.

Steve Scala – Cowen & Company

Frank, would you dissect the strength in gross profit margin? How much was currency? How much were efficiencies? And how much was mix? And also how much of the narrowing of the range in sales and EPS guidance for the year is due to adverse currency fluctuations? And then one for Dr. Dolsten, what is your postmortem on the Bapineuzumab? Was that it flood molecule? Did you study the wrong patients? Or is the mechanism in your view unlikely to be effective? Thank you.

Frank D’Amelio

So let me hit the two questions you asked me, Steve. So first on efficiencies, foreign exchange relative to the quarter, let me run the numbers, which is if you look at our total adjusted cost for the quarter, they were down – and this includes cost of goods sold, SI&A and R&D, they were down $1.3 billion. So from $9.5 billion last year to $8.2 billion this year, foreign exchange helped that by $440 million. So if you take the $1.3 billion, subtract $440 million, you get roughly $850 million. That was down 8% operationally. If you also add back or adjust for the Nexium payment that we made, that 8% becomes 11%, which Ian had mentioned in his opening remarks.

In terms of foreign exchange to the bottom line, foreign exchange hurt the quarter by $0.02. And by the way in terms of rhythm of the numbers, if you look last year in Q3, it actually hurt – it actually helped Q3 by 4% – $0.04. It was a $0.04 good guy last quarter, $0.02 bad guy this quarter. In terms of the revenue guidance, the updated guidance is within the guidance we provided for the year. We had set 58 to 60, we tightened it this quarter, left the lower end of the range and then lowered the top end of the range from 60 to 59. That decrease, if you look the midpoint to midpoint, is really primarily driven by foreign exchange.

You can’t just look at the euro, which is typically what we do, and that’s a big piece of our revenues, about 18% of our revenues are euro dominated. But the yen and the Brazilian real have really been moving against us quite frankly since the beginning of the year. The real more recently. And then when we tighten the range, it has a more pronounced effect, which is why we lowered the range from 58 to 60 to 58 to 69. So the short answer is, foreign exchange is the driver relative to our revenue guidance.

Ian Read

Thank you, Frank. And within the euro being roughly 18% of our sales, the yen represents 10% and the real represents 4%, so basically, while traditionally people just look at the euro, you’ve got a look at that mix to model the impact of exchange on Pfizer. I’m going to ask Olivier to answer the question on bapi and then I’ll Mikael Dolsten to add anything if he thinks he wants to do that after Olivier’s comments.

Mikael Dolsten

All right. Steve, so we are currently closing out the bapi program as you know. We have not seen any evidence of clinical activity in any of the relevant sub-population we study. We reported results earlier in October and as we speak, at the clinical trial AD meeting this week in Monte Carlo. And the only study which is remaining with bapi is a sub-Q formulation study which is called the Summit AD. It’s actually fully enrolled at this point and we are expecting to see the results during the first quarter of 2013. I’d like to mention that it is only a biomarker study, it is not an efficacy or safety study at this point.

So the alliance is going to look at all the biomarker analysis we have not only coming from what we have already. But an additional two product SCC01 and also BOO3 and that information will actually inform our future work regarding potential for promo AD with any of those candidates which we have in our pipeline. So we continue to believe in the btime pathway and are committed to research in AD and to that point I would like to ask Mikael eventually to mention a few.

Steve Scala – Cowen & Company

I would assume anything you say would be speculation, but go ahead.

Frank D’Amelio

I think Olivier summarized it in an excellent manner and we do continue as many in the field believe that effective intervention with Amyloid formation at the early stage of the disease is a valued way forward to explore. We have a broad AD pipeline with both disease-modifying and systematic approaches. Let me mention our Sam 765 HT6 antagonist that has completed phase 1 and is considered for further studies. We have other ways to interfere with Amyloid formation such as base and gamma secretive inhibitors in late pre-clinical and as Olivier mentioned, we are assessing different antibody approaches to modulate the base Amyloid and this reflects our continued interest to research in inflammatory disease.

Ian Read

Thank you, Mikael.

Chuck Triano

Next question, please, operator?

Operator

Your next question comes from Seamus Fernandez with Leerink Swann.

Seamus Fernandez – Leerink Swann

I have a question. Wondering can we get a little bit more color on how we should be thinking about the growth drivers of Prevnar 13 particularly in the pediatric indications going forward? What percentage of NIP’s are now kind of filled given the fact that we are seeing this slowdown in the U.S.? And separately, as we think about some of the 2013 phase 2 catalysts, Mikael, maybe you could give us a little bit of your thoughts on the catalysts that you are most focused on? I think historically, there has been talk about IO. I guess that’s the Inotuzumab product for the antibody drug conjugate as well as dacomitinib on the oncology side. Those are two that jump out at me. Thanks a lot.

Ian Read

Okay, Geno. Would you like to comment on the play between pediatric and adult and then Mikael will comment on the 13.

Geno Germano

I think with Prevnar pediatric, we’re seeing now is primarily the effect of the success that we had with the catch-up opportunity where we added over $1 billion of value to the company by taking full advantage of the catch up opportunity when we introduced the 13 and now we’re reaching a point where it’s the base birth cohort that is driving the pediatric business. We have very strong NIP performance across most of the developed world.

We are still growing in Japan and I think future growth for the pediatric business will come from growth in emerging markets and in markets where we haven’t introduced the thirteenth Valent yet which would included Japan and China. And in the U.S. you get a little bit from price each year but it’s fundamentally a strong base of business that we think we can grow to some extent but probably not dramatically in the developed markets. The growth opportunity truly comes from the adult business.

As you know, without the formal recommendations in place yet the adult business is slow to develop. In the U.S. we’ve recently gotten an ASIC recommendation for immuno-compromised patients and CDC has indicated that they will make Prevnar a recommended vaccine as part of the hospital quality measures. These are things that will help bring attention to the use of the conjugate vaccine in the adult population. But we think the real lift and the real big opportunity for growth in the franchise comes when we have a broader set of recommendations from the major recommending bodies around the world which will occur post-capita.

Ian Read

Thank you, Geno. Mikael?

Mikael Dolsten

Yeah, so left on the line are a couple interesting conferences end of this year already with data starting with the ACR Rheumatology Conference where we will have several abstract on tofacitinib including the oral start study on structure end point in pre-metatrecsate treated patients. American Heart Association – we will have P59 and also sub analysis from Eliquis studies.

I briefly mentions San Antonio Breast Cancer Symposium in December. We will report the Phase 2 data from CDK in advanced breast cancer. As you mentioned dacomitinib – we will have two Phase 3 studies that are expected to be presented at the conference in 2013. We will also show a final analysis at relevant medical conference in 2013 on inlighta and we will continue to generate important data on tofacitinib in psoriasis and as John Young mentioned ALO2, our oxycodone abuse deterrent compound.

Ian Read

Thank you, Mikael.

Chuck Triano

And next question, please, operator.

Operator

Your next question comes from Jeff Holford from Jefferies.

Jeff Holford – Jefferies

Hi. Thanks for taking my questions. Firstly, can you just comment on your review regarding M&A opportunities out there? Does this authorization of a new share repurchase program imply any view from you – any change in view on the attractiveness of bolt on opportunities and acquisitions that may or may not be out there?

Secondly, the cost savings does appear to be running somewhat ahead of – at least our expectations. I’m wondering if it is from your point of view just faster delivery than you may have originally anticipated or do you think you can go beyond what you have previously guided in terms of cost-saving and efficiencies within the business. And then just lastly, I wonder if you could make some sort of comment about the tax rate beyond this year. Appears you may be seeing some structural mix changes in your tax rate. If you could talk a little bit about that in terms of a Q3 or (inaudible) tax rate? Thank you.

Ian Read

Okay. Thank you for the questions, Jeff. On the bolt on opportunities we don’t seeing that the increased authorization for buybacks in any way diminishes our ability to do bolt on M&A transactions if we find cases that can be share buyback. And I’d ask Frank a little bit about the cost savings and tax rate.

Frank D’Amelio

Yeah, so on the tax rate – we reiterated our guidance for the year approximately 29%. I think going forward with all the uncertainty around tax reform we should assume 29% and the one thing I’ll say is relative to tax reform we support any tax reform that will enhance the global competitive of U.S. companies that are operating internationally. But I think going forward given the uncertainty around this we’ll continue to assume approximately 29%.

In terms of the cost savings, I think the way I’ll answer this is almost in terms of what inning we’re in relative to a baseball game. So if you think about a nine inning game we’re clearly not in the early innings. I don’t think we’re in the late innings. I think we’re toward the end of the middle innings. So there’s still opportunity but clearly the absolute size of the opportunity isn’t what the size of the opportunity was a few years ago given the billions of dollars we’ve already taken out of our cost structure.

Ian Read

Yeah, I would say the changes going forward – if it ever was easy some of the targets – the more obvious targets have already been taken care of and now it’s going to be cost reductions or increased efficiencies going to be coming from exactly that. Looking at business models and structure, and as Frank said, the targets that were there available, have been hit and taken care of. So, with that, I think we’ll move on.

Operator

Your next question comes from Alex Arphe from BMO.

Alex Arphe – BMO

Good morning. Thanks for taking my question. First, Enbrel and other TNF seemed to be little weaker in Europe this quarter. We’ve heard about cost containment measures focused on TNF. To what extent do you see this as an opportunity for tofa as a potentially cheaper option that has similar efficacy? And as a follow-up, the Animal Health business was a little bit lighter operationally compared to what we’ve seen with some of your peers. Is there anything that was unique to this quarter that we should be aware of? Thank you.

Ian Read

Thank you. Geno, if you could do Enbrel and then Frank if you’d like to answer Animal Health.

Geno Germano

Sure. I think that the TNF inhibitors and frankly the whole pharmaceutical portfolio has experienced some challenge with cost-containment measures in Europe. Our TNF business has been impacted more in the southern European countries than in the North but there is some effect there. The volume growth remains fairly strong so I think the place for TNF inhibitors is relatively secure. In terms of tofa, we will announce our pricing strategy once we have approval and we’re ready to introduce the product.

Ian Read

Thank you.

Frank D’Amelio

On Animal Health, let me run the numbers then I’ll give a little color-commentary. To your point Alex, the quarter year-to-date growth was 4% but if you look at it on a year-to-date basis the operating growth was 6%. S we’ll will get some volatility quarter-to-quarter but on nine-month, year-to-date basis 6%. If you drill down a little bit we see increased demand across the global livestock portfolio, increased demand across the companion-animal portfolio and increased demand in certain key geographies and I think the watch items are clearly the drought in the U.S., Midwest and Southwest and just what’s going on in Europe in particular southern Europe relative to the economy but net, net, year-to-date basis 6% operating growth which we view as nice for that business.

Alex Arphe – BMO

Thank you, Frank.

Chuck Triano

Thanks, Frank. Next question, please, operator?

Operator

Your next question comes from the line of Damian Canover from Morningstar.

Damian Canover – Morningstar

Great. Thanks for taking the question, most of my questions have been asked but just wanted to follow up on the management of the cost structure and continuing the baseball analogy, it depends I guess when you start the analogy but you look at towards the end of middle innings it might suggest anywhere in the neighborhood of one to two billion in annual cost savings still to be pulled out from Pfizer. I’m just wondering if you could maybe characterize where that number fits in the scheme.

And also when you look at managing the cost structure are you largely balancing costs that could be saved from products losing exclusivity versus costs that will be needed to launch new products? And then just lastly, I was wondering if you could comment on the variable costs porting Celebrex. Thank you.

Ian Read

When we look at our costs, you obviously look at a company that has grown by acquisitions which has allowed us to take out costs as we do the acquisitions. If you look at our global position and we carefully analyze what is our share of voice and what is our share of mind against competitors and we analyze that in the context of an industry that is in itself restructuring and faced with headwinds on pricing and access so that the spend you need up in the marketplace depends to a large extent on the competitive set you’re against.

So we tend to look at the spending of our competitors and what we need to do to remain competitive as a benchmark. I want to be clear here that we are looking t costs always with a view to remaining competitive in the marketplace. Frank, do you want to add anything to that?

Geno Germano

Maybe I’ll give a little sub-ledger detail relative to what I said relative to where we are and then some of the opportunities going forward. First, if you think about manufacturing, we said, I’ve said previously we still have, give or take about 10 manufacturing facilities that we plan to exit over the next several years in the U.S., Puerto Rico and Ireland, 10 manufacturing facilities. That obviously represents a significant opportunity.

We continue to streamline our corporate center and enabling function services. We continue to believe there’s additional opportunities there and we are looking at all of our functions, everything we do in terms of where are there opportunities to be more efficient, more productive we’ve been doing that, we’ll continue to do that. But those are some of the opportunity areas relative to what we can do on a going-forward basis and why I said where we are relative to the continuum.

Hi. Ian, in the past you’ve talked about cost cutting in Europe and how you are really focused on taking more cost out of Europe and changing the business model a little bit. I was wondering if you were prepared to talk about that little bit. And then the second question is on gross margin. Once we eliminate these 10 plants and once we get through a couple more years of patent expiries, what is the sustainable gross margin? All we still around 80%?

Ian Read

Okay. The opportunities in Europe of course center around, as the European Union moves towards a more centralized retrograde environment, what do you need to do on a country by country basis to maintain a commercially competitive organization and what you need to do to maintain your marketing and medical and the infrastructure?

And It’s easy to compare Europe with the U.S., which is a lot simpler, because it’s federal and it’s one regulation but as Europe moves towards that and we tend to look at the treatment of Europe while not identical but more similar to a structure you would have in the U.S. but I would ask John Young if he wants to add anything to that as he’s been managing, previously managing Europe for some considerable time.

Geno Germano

The only add I would give is that obviously as we do in all of our regions in all of our businesses around the world, one of the things that we will continue to do is to make sure that we deploy our resources in line with the opportunity to generate revenue growth and value for shareholders. That is something that we’ve been doing very actively, as you know over the last three to four years. And in line with the continued evolution, the pipeline will continue to deploy resources appropriately in Europe to maximize shareholder value as the portfolio continues to evolve.

Ian Read

Thank you. Frank, do you want to try to answer the gross margin question?

Frank D’Amelio

Sure. So I think clearly there’ll be downward pressure on our gross margin on a going forward basis when you think about how the mix of our revenues is changing but I think the thing to focus on is our operating margins. We can continue to generate cost reduction and productivity improvements to keep the operating margin relatively constant on a going forward basis.

Chuck Triano

Thanks, Frank, and thank you, everybody, for being flexible with the date change, and thanks for your time this morning.

Operator

Ladies and gentlemen, this concludes the Pfizer’s Third Quarter 2012 Earnings Conference Call. You may now disconnect.

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